Our site (www.ecofin-surge.co.in) covers issues of interest on the Indian economy, Indian economic policy, Indian Financial markets and Global economic prospects. It also provides statistical data on the Indian economy and global economic indicators.

Monday, September 3, 2012

Challenges for India’s policymakers on the rise as India records worst 1st quarter growth in a decade and key debt and deficit indicators rise

Robust growth by
construction, real estate and financial business services, which together
account for 27% of the GDP, along with a 2.9% growth in agriculture took
India’s Q1 2012-13 growth to 5.5%, even as the manufacturing sector slowed to a
near-zero (0.2%) growth. All three critical drivers of growth, namely, private
consumption, investment and exports continued to slow. The decline in the
growth of fixed investment to 0.7% in Q1 of 2012-13 as against 14.7% in Q1 of
2011-12 is the major source of concern, as it indicates further deceleration in
growth going forward. While the high rate of growth (10.9%) of construction is
on a low base (3.5% in Q1 last fiscal), the 'financing, insurance, real estate
and business services' sectors together grew 10.8%, even on a high base of
9.4%. The 'trade, hotels, transport and communications' sectors witnessed just
4% growth, owing partly to a high base effect (13.8% in Q1 of the last fiscal).
Overall, services output slowed sharply to 6.9% in Q1 from 7.9% in the previous
quarter, reflecting the lagged adverse effects of the industrial slowdown on
the services sector. A survey by the central bank has shown that estimated
total fixed investment by large firms in new projects which were sanctioned
financial assistance nearly halved during 2011-12 indicating further slowdown
in economic activity and job creation.

Slowing growth is
taking its toll on revenues while government was unable to rein in its
expenditure: fiscal deficit during April-July reached Rs 2.64 billion or 51% of
the budgeted estimate of Rs.5.1 billion, raising fears of the government
breaching its fiscal deficit target of 5.1% of GDP for the current fiscal.
Government's total receipts in the first four months of the fiscal was at Rs.
1.73 billion, just 17.7% of the budgeted amount, while its expenditure climbed
to Rs. 4.37 billion, or 29.3% of the budgeted amount. With increasing recourse
to debt flows and drawdown of reserves to finance the CAD, various external
sector vulnerability indicators showed considerable deterioration during
2011-12. The central bank’s report on India’s external debt showed thatreserve cover of imports, the ratio of short-term debt to total external
debt, the ratio of foreign exchange reserves to total debt, and the debt
service ratio deteriorated during the financial year. On the positive side the
share of government (external) debt has gone down and the country remains in a
comfortable position with regard to short term debt and the debt service ratio
relative to other indebted countries. Get regular updates on Growth, Inflation and other Indian
& Global Macro-Financial indicators/data with E-UpDates—A Monthly
Statistical Bulletin by Ecofin-Surge.

1 comment:

While the stance of the government is expected to be clear in the next few days, it is likely that foreign retail chains would soon be knocking on the door of the country with a huge line-up of investments. Know more about this on http://www.indian-economy.ibef.org/

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